The Real eBay Profit Calculator – is Your eBay Business Profitable?

When I just started selling on eBay, all I knew about making a profit from eBay sales was that I had to pay eBay PayPal fees for every sale, which were approximately 10% of the total item sale price. I certainly wasn’t using any eBay profit calculator. I’ve already mentioned this briefly when writing about the 3 deadliest mistakes we did that nearly killed our business, but I feel that there is not enough practical information about this and it’s too important to ignore.

Sure, there was an insertion fee, but it was so negligible that I didn’t take it into consideration when calculating my profit.

I was working from home so I didn’t have any expenses on office rent and I was drop shipping, so I didn’t have to physically store any items in my own space as my supplier was handling all the logistics, including the storage of goods, packaging and dispatching.

In the first weeks, when I didn’t know if I was going to do this as a real business, I didn’t even register any sort of business entity, so there were no expenses on registering a business entity and hiring an accountant for bookkeeping and annual reports.

All I knew was that if I sell an item for $50, my expenses would be:

A final value eBay fee = $4

PayPal fee = $1.5

Item cost with shipping = $40

So after paying my supplier and deducting the eBay and PayPal fees, my profit would be:

That’s a cool 9% profit margin, which was good enough for me as it meant that if I was able to reach my initial goal of $20,000 in monthly sales, my profit would be $1,800 each month and that was a nice income for something done part-time while you’re in college in a country where the median salary is $1,400.

But, even when you’re just getting started and you work from home, there are expenses you must take into account. One of the crucial ones is how much the returns affect your profit.

Calculating the effect of returns

Regardless of which business you are in, there are always customers who will receive the goods and want to return them, for many different reasons (some are ridiculous as I’m sure we have all experienced). Each and every return costs you money.

Let’s take an example: say you’re dropshipping a pair of shoes and the customer decides to return them because he’s not feeling comfortable in them. You will most likely have to pay the return shipping cost and possibly some restocking fee. If you paid the import fees for the customer then that’s another expense you won’t be able to recover. In some cases, the supplier won’t accept the return and you will lose the entire amount of the product cost. Eventually, you should understand what percentage plays the return from your total monthly sales.

The best way to do that is to start keeping track of each return and how much it cost you.

Follow these steps:

Create an excel sheet and insert every return cost during the month.

Summarize the total returns cost for the specific month.

Calculate your total revenue in that month

Calculate the percentage of returns cost from the total revenue

Repeat the process for 3 months and take the average percentage.

For example:

Total returns cost in January – $450

Total revenue in January – $21,000

Returns cost as a percentage of revenue – 2.1%

In February it is 1.4% and in March it’s 2%

The average is 1.8%

Now, once you know how much returns cost you, you have to take them into account when calculating the price at which you want to list your products. When I say take into account, I mean simply add the 1.8% to the item price to keep your net margin on the level you want it.

Small expenses add up

I used to ignore all the expenses that looked insignificant, such as eBay insertion fees, store subscription, yearly domain cost, bank service charges and more. At one point, I decided to break down all my expenses month by month and realized that all these small expenses were actually quite a significant portion of my total expenses when added up and that they had to be taken into account when calculating the profit margin I wanted on my sales.

You have to calculate the sum of each expense and see how much it is as a percentage of your total monthly sales.

Eventually, you should have a full breakdown that looks something like this:

The above expense structure is oversimplified. You should add the expenses relevant to your business to get the full picture of your expense structure. You might be surprised by your net profit after you calculate all the expenses.

eBay fee calculators

There are two tools you can use to better understand your revenue and costs on eBay.

The first tool is the fee calculator. This is helpful to understand what the total fees you need pay for a single product sale are, depending on the product category, selling format, listings enhancements and shipping fee.

The other tool is the fee illustrator, which helps you understand which store format, if at all, is the most beneficial for you.

I gave an example for using the tool in my eBay tips youtube series:

Bonus: Your time is money

In the early days, I used to scatter my time on a zillion activities related to my eBay sales. I was doing anything and everything without stopping to think if there was a better way to allocate my time on the activities that were more likely to earn me money than others. This was just one of the mistakes I made that could kill your business within the first year.

The turning point was when I realized that I was spending way too much time on customer support and running the day to day of our business instead of growing it. It’s a vicious cycle that is easy to fall into and you should avoid this at all costs. A business that is not growing is effectively slowly dying.

I analyzed the time spent on each activity and decided how I needed to proceed with each activity in the most effective manner.

If I was spending 3 hours a day on manual order processing, I decided to buy an automation software that costs $60 a month instead and thus reduce this task to just 30 minutes a day. I could use the other 2.5 hours to list new products that added $10,000-20,000 revenue a month (with the 5% net margin, it meant extra $500-1,000).

You can apply the same principle to time consuming tasks like creating listings and use Crazylister to easily create professional listings that will increase your sales.

Conclusion – eBay Profit Calculator

Break down your expenses to understand what percentage they represent from the overall sales.

Don’t neglect the small expenses as they add up and play a significant role in what your bottom line looks like.

Figure out which time consuming tasks you can automate to better utilize your time to grow your business.

Thanks for reading through, I’d be more than happy if you left a comment so we could have an open discussion to further help our eBay community members to increase sales.

Co-founder and CMO @CrazyLister.
2x founder, 1x Investor and constant SaaS enthusiast.
2x eBay award recipient for excellence in sales and highest conversion rates.
Started my journey in eCommerce back in 2008, grew an online business from zero to $4.5M in sales and never looked back.

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Yes, keeping track of your costs is certainly important, but it can be pretty scary as well! I’ve been actively Ebaying for nine months and I’m still trying to work out how to cut costs.

I’ve been considering this period as a “Business Establishment” phase and am happy enough to break even whilst I build my feedback score (now at 460/100%).

The immediate goal at the moment is to reach 500/100% feedback and sales of 250 per month.

I took the decision to engage a third-party e-commerce solution and list my items on both EBay and my own website, but in retrospect, that hasn’t been such a hot idea as it costs a lot more than it generates and website visibility is atrocious, hence very few sales via that channel. It has made listing on EBay easier, as that functionality is included, but that module is yet another cost.

So, I’ve made the decision to drop the e-commerce solution for now and concentrate purely on EBay using Crazy Lister to create my listings.

Hey Dave,
Starting a business with one sales channel is hard enough, I highly recommend concentrating on your eBay account first. It’s great that you set goals for yourself, once you reach 250 sales per month take a look at your financials and think if you can realistically start developing another sales channel. Focus is critical to success, if you lose focus on your eBay sales while trying to develop the website you might lose on both fronts. Good luck!

Stephen Kewn

Hello,
some good points however why sell for such small profit margins,
i started my business in oct16 now nearly 8 months on i have 116/ 99.1% feedback and net profit margin of 64.3% (according to xero) only small profit to date standing at £4500, with net goods value of £2500. PS id love 250 sales per month – currently averaging 47 (spm) listing is my downfall lol slowly slowly is my motto

Wow!
64% margin is amazing, I know of such margins mostly from manufacturers and high end products retailers.
The industry standard margins, particularly when it comes to dropshipping, are 7-20%.
It also depends on the level of competition in you niche, low competition usually means higher margins.
The level of “regulation” by the manufacturers is also a factor, they do this by setting MAP )Minimum Advertised Price) for each product and retailers cannot sell below the MAP.